Mary Jo Foley posts another way of looking at the same thing.

The numbers she posts regarding the adoption of online office suites are telling: almost no one has used them, almost everyone who does uses them as an addition to traditional office suites and not as a replacement for them.

She also links to this Henry Blodget post saying that Google is disrupting, rather than competing directly, with Microsoft. Blodget's take is that this is a massive threat to Microsoft in the long term, while MJ looks at the numbers and Microsoft's own efforts and judges them entirely adequate to retain control of the market that is there, not the one that the pundits envision. I personally still think it's odd to view Live as a response of any sort to the online office suite market; it's more like a wiki than a web-based office.

I have to applaud Microsoft's handling of a number of recent "disruptive" technologies, particularly SOA, as being far more realistic and relevant than they are generally given credit for, and certainly more than some of their competitors. But when it comes to SaaS in general and Office Live Workspaces in particular, I can only reiterate what I posted this morning-it's a bet on a certain philosophy of computing more than anything else. If you look at Mary Jo's numbers, then they seem to support that philosophy, but one might have cited similar numbers in the 1970s supporting the massive predominance of mainframe computing over the small, experimental clusters of personal computers, and we all know how that turned out. Bill and Paul bet on the PC and won; Sergey and Larry are betting on web services, and it's early in the game.

Mary Jo thinks there is a rational market response to all this which doesn't involve betting the company:

Instead, Microsoft is doing what the majority of productivity-suite users currently want, by adding a Web-collaboration element to Office with Office Live Workspace. At the same time, Microsoft also is sowing the seeds for a Web-based consumer office suite with the Notes and Lists components of Office Live Workspace. If and when there's enough customer demand for such a product, Microsoft won't be starting from scratch to build a Web-based suite.

But when it comes to philosophy, I think that betting the company is the way to go; IBM hedged their bets with personal computers, too, but they aren't who we talk about when we talk about dominance in the PC market today. If web services really are the future-and I happen to believe they are, albeit on a longer time scale than many-then Live Workspaces are little more than a rear-guard action for a few home users that will be all but forgotten when Google Apps, or some descendant, storms the corporate bastions.